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Market Commentary The Federal Reserve has kept the overnight rate The Federal Reserve has kept the overnight rate between 0.00%-0.25% for 10 consecutive meetings. The Committee also stated its intent to maintain this stance “for an extended period,” which consensus interprets as another six months. The outlook for economic outlook was however upgraded stating “economic activity has continued to strengthened” and that “the labor market is stabilizing” as opposed to deteriorating at slower pace back in January. Inflation is expected “to be subdued for some time.” The Central Bank once again noted purchases of mortgage backed securities and agency securities will end by March 31 and the last of the special emergency lending vehicles will close by June 30. What was not stated was how excess reserves will be drained from the banking system or other measures to prevent monetary induced inflation. In my view the Federal Reserve will continue to experiment with reverse repos (selling positions to large financial organizations and agreeing to buy them back at a later price at predetermined price) and paying interest on excess bank reserves. On balance the meeting largely met consensus however some, including me, thought the Committee would telegraph a different message regarding the inevitable change in monetary policy. Both stocks and bonds advanced marginally on the Fed’s inaction. The data released yesterday had minimal impact upon the averages as the data largely met expectations. Today the markets are faced with Congressional Testimony by FRB Chairman Bernanke as well as former Chair Paul Volcker on the linkage between monetary policy and supervision. The PPI is released at Last night the foreign markets were up. The Dow should open moderately higher as the Federal Reserve pledged to keep interest low for “an extended period.” The dollar is lower on this pledge but the 10-year is up 2/32 to yield 3.64%. The information is the personal views of Kent Engelke and is not necessarily indicative of those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed here are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. Capitol Securities Management, Inc. is a Mid-Atlantic based, privately owned brokerage and investment firm with branch offices in Mclean and Richmond, VA, Boston MA, Hickory, NC, Florham Park, NJ and Tampa, FL. Capitol employs over 170 fulltime investment professionals and independent affiliates in locations from New England to Florida and has been serving the needs of its investors for over 25 years. It is a member of FINRA and SIPC. © Copyright 2008 Capitol Securities, Inc. All Rights Reserved. |
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